Smart Republicans, Stupid Democrats

If Democrats are the big spenders, why do Republican states get the money?

One of the co-chairmen of President Obama's bipartisan debt reduction council recently got in trouble for telling a women's advocacy group that Social Security had "reached a point now where it's like a milk cow with 310 million tits!"

If you guessed it was the Republican co-chairman and not the Democrat who said it, you would be right—it was former Wyoming Sen. Alan Simpson—but therein hangs a tale.

Republicans have a near monopoly on complaints about government spending. Dozens of new Tea Party candidates were elected to Congress on a promise to clean house. But data going back two decades—to stick to Simpson's crude metaphor—show the milk is mostly coming from Democratic states, and the sucking is being done by Republican states.

The "red" states up in arms about government spending receive the largest share of it. This is not a new finding, but research by economist Gary Richardson at the University of California-Irvine backs it up. Richardson provides insight into how the paradox came about and what it means for the future.

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It isn't surprising that the more Republican a state leans, the more likely it is to be furious about government spending. But what is surprising is that states with the highest anti-spending sentiment appear to be the largest beneficiaries of government spending. Not only do red states swallow the lion's share of government spending, but Richardson found a linear relationship between the extent of GOP support in a state—and, by implication, the fervor of its anti-government sentiment—and the amount of federal largesse the state receives.

Alaska, home to Sarah Palin, and where two fiscally conservative Republican candidates for Senate recently mopped up 75 percent of the vote between them, received $1.64 in federal benefits for every $1 the state contributed to the national kitty. Massachusetts, Richardson found last year, received 82 cents for every dollar it paid into the national pool. No doubt as compensation, liberals in Massachusetts and other "blue" states also received lots of vitriol for being such out-of-control spenders.

The 28 states where George W. Bush won more than 50 percent of the vote in 2004 received an average of $1.32 for every dollar contributed. The 19 states where Bush received less than 50 percent of the vote collected 93 cents on the dollar.

"Voting Republican paid large dividends," Richardson wrote in a piece published in the Economist's Voice. "For each 1 percent of the population voting in favor of the Republican presidential candidate, the state received an additional 1.7 cents in benefits for each dollar in taxes."

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No sane person would argue that every state should get precisely as much as it puts in. Different states will need larger or smaller benefits at different points of time. But Richardson's data don't just show that the redistribution of resources correlates with a state's political orientation. They show that the amount of money being collected from Democratic states and redirected to Republican states has systematically grown over time.

During the 1970s and 1980s—throughout the Carter, Reagan, and George H.W. Bush administrations—there was no correlation between anti-spending sentiment and getting lots of federal money. The net return to states that voted for Republicans was relatively flat, meaning that "red" states didn't get most of the pie.

But that changed around 1994—after the last Republican takeover of Congress. Then, as now, Republicans rode to power on charges of government profligacy and promises to clean house. Then, as now, Republicans promised to lower taxes and to reduce government expenditure. Then, as now, Republicans warned the Democrat in the White House to come to his senses and move his administration to the right.

Buried in the fine print of Newt Gingrich's "Contract With America," Richardson found an income redistribution scheme. The proportion of government spending on groups that traditionally supported Democrats fell. The proportion of government income from groups that traditionally supported Democrats rose.

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"Tax rates declined more for groups that tended to vote Republican. These groups include people with incomes in the upper tail of the distribution, such as small business owners, property owners, and investors accruing capital gains. … At the same time, expenditures fell more for programs directed toward people that tended to vote Democratic. These groups included welfare recipients, inner-city residents, and individuals in the lower tail of the income distribution."

Just as they did in the 1990s, Democrats and Republicans today are arguing not about whether to cut government expenditure, but where and how much to cut it. They are arguing not about whether to extend tax breaks to rich families, but just how rich you have to be to qualify for tax breaks. Smart observers think the Democrats in 2010 will repeat what they did in the 1990s—reduce expenditures on people who tend to vote Democratic and decrease taxes paid by people who tend to vote Republican.

There is certainly room for debate about Richardson's conclusions. Seth Giertz at the University of Nebraska argues, for example, that the correlation merely reflects the fact that we have a progressive tax system—blue states pay more into the kitty because blue states are richer than red states. We also don't know who in the red or blue states is paying or receiving the money. Is it possible that Republicans in blue states are paying most of the money, while Democrats in red states are receiving most of it?

In an e-mail, Richardson argued—and I agree with him—that the progressive-tax-code explanation is inadequate because the blue-state-red-state trend has unfolded even as the tax code has become less progressive. The tax code today barely distinguishes between the merely wealthy and the insanely rich—your local doctor faces the same taxation level as LeBron James. And the linear relationship between the degree of conservatism in a state and the amount of federal spending it receives contradicts the notion that conservatives in blue states might be footing the bill for liberals in red states. The more conservatives a state has, the less it pays. The more liberals a state has, the less it receives.

At a minimum, conservatives must agree there is a contradiction between being against government spending and dominating the politics of states that get the lion's share of federal spending. The beauty of the trick, from a psychological point of view, is not that Republicans serve their constituents. It is that Republicans have succeeded in making Democrats feel lousy for being out-of-touch elitists who can't be trusted to keep spending under control.

Crucial to their victory in the policy arena, Richardson argued, was the Republican victory in the national conversation. Conservatives pushed through their plan to redistribute income because they dominated the conversation about fiscal prudence, regularly admonishing even their own side for overspending. In the public mind, Republicans became the party of fiscal rectitude, and Democrats became the group that raised taxes on hard-working Americans.

"The second way in which Republicans became beneficiaries of federal spending was by dominating the debate about federal fiscal policies," Richardson wrote. "Republicans emphasized the virtues of the market, the inefficiency of government, and the effectiveness of the private sector. Now Democrats, too, have adopted this economic way of thinking—paying homage, now, to the goal of economic efficiency. This new focus on the Democrats' part has led to improvements in the cost and quality of government services, but it has also enabled the Republicans to advance their own constituents' distributional interests at the same time."

I blame it all on the hidden brain. What, other than unconscious bias, can explain why so many voters pay so much attention to what politicians say, and so little attention to what they do?